GreenStream is a unique actor on the Chinese market
It is a sunny afternoon in Helsinki when we meet the founder and Managing Director Jussi Nykänen for a chat about GreenStream’s (GS) business and activity in China.
GS’s business direction has changed many times since it was founded in 2001. GS initially worked as an intermediary in renewable energy, which led the company to later become a consultancy firm. It was via its consultancy business that GS eventually started working with funds related to renewable energy and emissions trading. These activities, in turn, led to GS starting up activities in China over ten years ago. Since 2009, GS has cooperated with a local Chinese partner.
When the business started to develop in China in 2006, it was explicitly with projects related to emissions trading. Big energy-intensive customers in China developed large amounts of renewable energy and energy efficiency projects and GS bought certified emissions reductions (CER) from these projects to its carbon funds. As a consequence of the failure to agree on a continuation of the Kyoto Protocol in Copenhagen in 2009, prices of CERs crashed and became almost worthless. This was the start of the current ESCO activity in China that GS began to develop after the crash to utilise its existing network of contacts and knowledge about China.
An energy service company, a so-called ESCO, supplies the technology, design and implementation of more energy-efficient technology and, at the same time, is responsible for any risk related to the implementation. GS offers suitable Nordic technology and finances the implementation of the project based on this technology. This means that GS carries the risk of the implementation. After the project is up and running, the energy savings created by the new technology are measured and the Chinese client pays a certain percentage of the financial value of these saving to GS monthly. After some 3-5 years the equipment is transferred to the client.
The first ESCO project was started in 2013, and today the seventh project of GS is being commissioned. In recent years, GS has worked primarily with the paper and steel industry, but it is now also developing projects within the manufacturing industry, which considers efficiency in a different way throughout the production and supply chain, as there are increasing demands also for the end product to be more energy efficient.
Nykänen is positive about the future in China for several reasons. The project portfolio is growing and partnerships in new industries are opening up. The market also appears to be moving forwards again after being at a near standstill last year. But Nykänen also confirms that China is not an easy market to work with and that so far there has been no chance to sit back and just let things run themselves. Working in China does require a good network of contacts as well as detailed knowledge of all the processes and regulations, which GS has developed over a period of more than ten years. It is therefore not only about looking for relevant Nordic technology for interested Chinese customers, but it also requires knowledge about technology deliveries across the country’s borders, ‘due diligence processes’, payment guarantees and an understanding of how Chinese companies work. Managing all these different dimensions is not easy and this makes it more difficult for other western ESCO companies to copy GS’ business model.
Much of the work is still on a case-by-case basis to be able to match the right Nordic technology supplier with the right customer in China. Today, GS works with about ten different technology companies, but it is always looking for new contacts to be able to offer the most relevant technology to its customers, as it is precisely quality that Nordic companies can compete on, and reliability that they are valued for. Nykänen hopes that GS projects can serve as a display window for Nordic technologies in China. He also stresses the importance of investing in research and development in the Nordic countries and Europe, as otherwise there is a risk that Chinese suppliers will also overtake them on quality in the future. China is investing heavily in developing and producing new innovations. There is a real likelihood that, in five years, Chinese technology companies will be as good as the Nordic ones are today.
Nykänen points out that it is thanks to NEFCO’s equity financing that GS is seen as a reliable partner. The link to public actors is very important in China. For a small actor in a big market, this is extra important, and it is crucial to be able to say that it has an investor representing all five of the Nordic countries. Nykänen also hopes that our cooperation in China will be able to help our customers and partners to enter the Chinese market, and that we will be able to implement energy-efficiency projects in China in the future through other financing instruments as well.
During GS’s time in China, there has been enormous development in the Chinese people’s awareness of working with energy and resource efficiency. Nykänen believes the main reason for this has to do with climate change, which has become more present, with the incredibly poor air quality. But the lack of clean water and dwindling natural resources have also forced the Chinese to start acting and investing in renewable energy sources. Today, the environmental aspect is present in everything and is among the country’s top priorities. One of the big worries of the middle classes is the poor air quality, and today young people are being sent abroad to study to get away from the pollution. All this has led to China now being among the world’s leading nations in producing more environmentally friendly technology and innovative solutions for energy efficiency, and renewable energy is being developed at a rapid pace. Due to this awareness, the Chinese are also prepared to invest in quality, in a different way to before, and GS is now able to continue working with this positive trend.
While the whole world is working based on the Paris Agreement to develop new mechanisms for emissions trading, to mitigate climate change, the world has its eyes on China, which intends to start a new national emissions trading system this year. The Nordic prime ministers also stressed, in end of May, the importance of greater cooperation by the Nordic countries with China.
NEFCO has worked with GS since the beginning of the 2000s, when its first carbon credit funds were developed. In January 2016, we signed a shareholders agreement and we are one of the biggest shareholders in GS today. Thanks to our investment, we are part of financing energy-efficiency projects in China as our financing activities mainly have been carried out in Eastern-Europe over the years.